Legislature(1997 - 1998)
03/05/1998 10:03 AM House O&G
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 393 - DEVELOP STRANDED GAS RESOURCES Number 1047 CHAIRMAN HODGINS stated that the committee would now hear HB 393, "An Act relating to contracts with the state establishing payments in lieu of other taxes by a qualified sponsor or qualified sponsor group for projects to develop stranded gas resources in the state; providing for the inclusion in such contracts of terms making certain adjustments regarding royalty value and the timing and notice of the state's right to take royalty in kind or in value from such projects; relating to the effect of such contracts on municipal taxation; and providing for an effective date." He asked Mr. Carter to present the changes. Number 1057 MR. CARTER stated that the marked-up version of HB 393 includes Representative Kemplen's concerns that he submitted to the committee. He stated that throughout the bill "stranded" has been removed because it was not industry nomenclature to use the term stranded gas. On page 2, some of the findings have been either removed or amended. He specifically referred the committee to page 2, lines 24 through 28, and the insert that states "Experimental research is being conducted on gas-to-liquids (GTL) technology. If this research result in a commercially viable technology, and after economic analysis, by the state of Alaska, of the application of this technology it is shown that local, or state tax or regulatory changes are necessary to commercialize an Alaska project utilizing this technology, then this technology may be considered in regards to this legislation." The reason is it is difficult to establish what is economic and at this stage it has not been proven that GTLs are economically viable in this state. Number 1261 MR. CARTER stated that on page 6, line 21 the word "economic has been added before proximity and he suggested that the committee work on a definition for economic proximity. He stated that through the bill "department" has been changed to "commissioner". He stated on page 9, line 21 the year 2004 has been changed to the year 2000. Number 1415 MR. CARTER referred to page 15 and stated that at a future meeting , a representative from the Department of Law would be present and the qualifications for an Alaskan resident will be more clearly defined. He referred to page 23 and stated that the section regarding the affected municipalities this may be changed after the next meeting with the pipeline mayors. Page 25, line 13 now reads "qualified project means a gas that qualifies for development under the terms of this legislation as determined by the commissioner of revenue." Number 1594 REPRESENTATIVE ROKEBERG referred to the GTL insertion and asked if the legislation would then be applicable to any future GTL contract. Number 1616 CHAIRMAN HODGINS replied that it is enabling legislation, that would allow negotiation and if the GTL technology is viable for the North Slope Gas then a negotiation could start under this insert. Number 1649 REPRESENTATIVE ROKEBERG stated that it would then go through the same pipeline that is already there. He asked why their needs to be this relationship to a new tax regime if the existing pipeline is already there. Number 1674 CHAIRMAN HODGINS replied that there would be some costs in building the GTLs technology and the tax regime may or may not become part of the economic analysis for that. He asked if anyone from the industry would care to comment. Number 1713 GEORGE FINDLING, Business Development Advisor, Commercial Gas Development, ARCO Alaska Incorporated, stated that whatever kind of investment that would commercialize stranded gas would be eligible for some kind of fiscal contract and what the nature of the contract would look like is entirely open. It is clear that it would be a different kind of fiscal regime for a GTL. The idea is to raise the economic viability of whatever the alternative is. REPRESENTATIVE ROKEBERG stated that the scope of technology and investments for GTLs would be entirely different than for a liquefied natural gas (LNG). He agreed that it needs to be encouraged. Number 1847 MR. FINDLING stated that he does not see the technology to be that different. He stated that the approaches are the same in that it is trying to commercialize or make economically viable gas resources that are commercially available right now. ARCO's base case development plan is LNG but they are working on the option of GTLs. The question he sees is, should the option of GTLs be kept open for the state of Alaska, with the recognition that the base case is still LNG. He asserted that the answer should be yes. He stated that ultimately the fiscal regime would have to be approved by the legislature and if they did not like it, it would not have to be approved. Number 1976 REPRESENTATIVE ROKEBERG stated that he agreed with him but he is not sure that under the time-frame of the legislation if it could work. He asked what is the level of technology for GTLs at this point and how much would a GTL plant cost. Number 2056 MR. FINDLING stated that he did not know the cost of a GTL project but in a sense they do not know the cost of an LNG project either. He stated that the most reliable estimate right now is $15 billion, which does not work. He stated that he does not see the project as either choosing an LNG or GTL project. He stated that there is enough gas for both and what they are trying to do is keep the options open for the state of Alaska in whatever form the gas can be commercialized. Number 2128 REPRESENTATIVE ROKEBERG stated that he agreed but what is being talked about in the bill is entering into negotiation in the contractual agreement to lower the tax regime, and that is the distinction. Number 2152 MR. FINDLING replied that he sees this as framework legislation that sets out the framework under which a fiscal system could be developed that would make the project more competitive in a combination of other things. In that sense the fiscal system is not defined yet because it has to work in combination with other aspects. Number 2209 REPRESENTATIVE ROKEBERG stated that is his point. Since it is enabling legislation on an LNG pipeline. The legislature is moving towards enabling industry to form a sponsor group. The time-frame would have an impact on that. He asked if the committee would prefer to see a longer time-frame in case the GTL technology proved to be beneficial and apply an reduced taxing scheme to the production of that down, the existing pipeline. Number 2312 MR. FINDLING replied that moving it to the year 2000, could stall the ability to do GTL based on the technology. It is unknown as to if the GTL technology is going to work. He stated that to him it is framework legislation for an investment that commercializes gas within the state. Number 2428 REPRESENTATIVE RYAN referred to a presentation on GTLs and stated that he was told that there was a 60 percent loss of gas in the conversion process and the net of the liquid would be 40 percent. He asked if that was correct. Number 2472 CHAIRMAN HODGINS replied that his recollection is that it would be 30 to 40 percent. TAPE 98-19, SIDE A Number 0018 REPRESENTATIVE RYAN reiterated that there are a lot of unknowns to the project, but the industry is asking for the state's money and favorable interest rates. He stated that the residency requirements are lax which would mean that anyone can come to Alaska to get a job. The intent language binds the state in many ways. He stated that he is uncomfortable with the bill because of all the unknowns. Number 0222 CHAIRMAN HODGINS stated that every portion should be looked at and until the committee gets some hard figures it is difficult to decide what can be done with reductions. He stated that it is still a profit for profit operation as both the private and public interests will profit if the project goes through. He stated that it is of the utmost importance to have local hire. Number 0351 REPRESENTATIVE OGAN stated that social economic effect of increased population, needs to be looked at. He stated that when deferring taxes and royalties, how is the gap filled in the mean time. Number 0441 REPRESENTATIVE ROKEBERG stated that he has concerns of Article 6 in the bill. As Article 6 is right now he does not feel he could support any of it. He stated that as it stands currently, the affected parties are those that are contiguous to the existing TAPS pipeline. He was concerned about having the other mayors involved than just the pipeline mayors. Number 0593 MARY MARSHBURN, Special Projects Coordinator, Department of Revenue, stated that the commissioner is working on the ratification language. She stated that they are in discussion with the municipalities and have heard the multiple comments of the committee. She stated that the department is concerned with the deletion of the word stranded from the bill. The concern is that the bill would then apply to any gas in the state, economic or uneconomic. Number 0721 REPRESENTATIVE RYAN asked if the bill applies to the known gas reserves on the North Slope or is it for all gas reserves that are yet to be discovered. Number 0737 MS. MARSHBURN replied that it would apply to any gas within the state of Alaska yet to be discovered. Number 0764 PAUL FUHS, Lobbyist, Yukon Pacific Corporation, stated that there needs to be a term, if not stranded, to justify why this action is being taken. He suggested that the work of Dr. van Meurs be included as well because his research on the necessity of fiscal terms is why we are here. He stated that he did not think there was a reason to exclude the GTL wording. He stated that there is a need for both LNGs and GTLs and room for both. He stated that the access along the gas line is an important consideration. He stated that many communities will be affected, and it is important to recognize that the state is taking away the right to tax oil and gas properties in the pipeline corridor. Number 0959 REPRESENTATIVE RYAN stated that his concern is that it is difficult to change something once it is passed and he stressed that a lot more information is needed so irreversible mistakes are not made. Number 1011 REPRESENTATIVE ROKEBERG stated he did believe that there needs to be some kind of "in lieu of payment", the question is just how to structure it properly. He stated that there is the problem of what is an affected community. He stated that the North Slope borough can not make the case that they are directly impacted, but they would have the right to tax. He suggested that the municipality of Anchorage and the Mat-su valley are going to have greater impacts than the North Slope borough, so to say that one borough has the right to tax over another is questionable. He asked where the true impacts are, and that there are no monies going to those communities that are truly impacted. There needs to be payment to the communities that are impacted. Number 1179 MR. SYKES stated that he would like to respond to the difference of LNG and GTL. He stated that the LNG project is perhaps a $100 billion project, after construction and operating costs, there is the potential to tax $75 billion. The difference with GTLs is that it provides only feed stock and oil companies use it as feed stock for diesel which is not taxable, therefore there is only the potential to have $15 billion worth of feed stock and almost no potential to make money under the present technology. He explained that he asked Dr. van Meurs why anyone would support a GTL project, Dr. van Meurs replied that the LNG project may not be feasible as the world does not need Alaska's gas as there is great competition and low gas prices. This would be a fall back position in regards to GTLs. Number 1326 MR. SYKES stated that the potential for an anti-trust may want to be considered, and how to ensure that there is competition in the transportation of the gas. He stated that they are also concerned with Article 6 and they have heard that bonding schemes are an option but should the government ask its municipalities to bond for private industry when the purpose of bonding is for things that require a public purpose. Another concern is the commissioner of the Department of Revenue's scope and latitude to negotiate. There should be a requirement for full public disclosure and clear guidelines. Number 1420 CHAIRMAN HODGINS announced that HB 393 would be held over.
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